Authors: Muhamad Umar Mai, Setiawan
Abstract: This study intends to assess the accuracy of life cycle theory prediction in explaining the dividend payment policies when a company in Indonesia conducts the Initial Public Offerings. Technically, this study aims to (1) examine the impacts of Retained Earnings to Total Equity (RE/TE), return on assets, firm age, firm size, and growth opportunity toward propensity to pay dividends, and (2) examine the impacts of RE/TE, return on assets, firm age, firm size, and growth opportunity toward dividend pay-out ratio. The population of this study was all companies that conducted the Initial Public Offerings on the Indonesia Stock Exchange from 2000 to 2017. The binary logistic regression model was used to analyze the data for reaching the first purpose while the ordinary least square was applied to answer the second one. The results show that dividend payment policies in the first year of companies conduct the Initial Public Offerings are in line with the life cycle theory prediction. It is proved by the positive and significant impacts of RE/TE, return on assets, firm age, and firm size toward propensity to pay dividends. Besides, it is also proved by the positive and significant impacts of return on assets and firm size toward dividend pay-out ratio; as well as the negative and significant impact of growth opportunity toward dividend pay-out ratio. The study does not acquire that growth opportunity gives a significant impact on the propensity to pay dividends, and RE/TE and firm age significantly impact dividend pay-out ratio.
Keywords: life cycle theory, dividend policy, and Initial Public Offerings.
DOI: 10.37394/23207.2021.18.3WSEAS Transactions on Business and Economics, ISSN / E-ISSN: 1109-9526 / 2224-2899, Volume 18, 2021, Art. #3